Saturday, December 28, 2013

FYI: 4th Cir Holds Named Defendants to be Aggregated for Purposes of CAFA's "Local Controversy" Exception

The U.S. Court of Appeals for the Fourth Circuit recently held that a district court properly aggregated various named defendants together for purposes of analyzing whether the "local controversy" exception to jurisdiction under the federal Class Action Fairness Act applied.

Two borrowers sued a lender, two title companies, and a class of defendant appraisers, alleging a scheme whereby the bank would suggest an inflated value for a given property to an appraiser, who would then appraise the property at that value, resulting in a borrower obtaining a loan that was underwater from the time of origination.The borrowers sued both individually and on behalf of a class of West Virginia citizens.The borrowers specifically identified a handful of appraisers, and also added a class of unnamed appraisers.

The lender removed the action to federal court, pursuant to the Class Action Fairness Act ("CAFA").The borrowers moved to remand the matter to state court, under the local controversy exception to CAFA.The district court granted the borrowers' motion, and the lender appealed.

As you may recall, the local controversy exception to CAFA provides that district courts must decline to exercise jurisdiction over an action and remand it to state court where, among other factors, at least one defendant (a) is a defendant from whom members of the plaintiff class are seeking "significant relief," (b) is a defendant whose conduct "forms a significant basis for the proposed plaintiff class's claims, and (c) is a citizen of the state in which the action originally was filed.28 U.S.C. Sec. 1332(d)(4)(A).

Here, the lender argued that it was improper for the district court to aggregate the various defendant appraisers together for the purpose of satisfying the "at least one defendant" requirement described above.The lender further argued that unidentified members of an uncertified class do not qualify as "defendants" for the purposes of CAFA.

The Fourth Circuit was unconvinced by the lender's contention that the "at least one defendant" requirement must be satisfied by only one defendant -- pointing out that "the term 'at least' permits a reading that more than one defendant could satisfy the stated criteria."

In addition, the Fourth Circuit examined the relevant legislative history and determined that CAFA's local controversy exception was designed to "permit actions with a truly local focus to remain in state court."Accordingly, it rejected the lender's interpretation of CAFA as one that would produce "an outcome that is demonstrably at odds with clearly expressed congressional intent."

Because all of the named defendant appraisers, all of the plaintiffs, and all of the alleged injuries supposedly occurred in the state where the action was filed, the Fourth Circuit held that the instant matter qualified as a local controversy, such that it appropriate for the lower court to aggregate the defendants together to determine whether the local controversy exception applied.

However, the Fourth Circuit ruled in favor of the lender in finding that "[a]n unnamed member of a proposed but uncertified class is not a party to the litigation."Accordingly, the Fourth Circuit indicated that the resolution of the appeal hinged on whether the defendant appraisers named by the borrowers satisfied the "at least one defendant" requirement of the local controversy exception.

Finding that the record was not sufficient to permit it to make that determination, the Fourth Circuit vacated the decision of the lower court, and remanded the matter for a determination as to whether the named defendant appraisers satisfy the "at least one defendant" requirement of the local controversy exception.

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Ralph Wutscher's practice focuses primarily on representing depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, distressed asset buyers and sellers, loss mitigation companies, automobile and other personal property secured lenders and finance companies, credit card and other unsecured lenders, and other consumer financial services providers. He represents the consumer lending industry as a litigator, and as regulatory compliance counsel.

Ralph has substantial experience in defending private consumer finance lawsuits, including cases ranging from large interstate putative class actions to localized single-asset cases, as well as in responding to regulatory investigations and other governmental proceedings. His litigation successes include not only victories at the trial court level, but also on appeal, and in various jurisdictions. He has successfully defended numerous putative class actions asserting violations of a wide range of federal and state consumer protection statutes. He is frequently consulted to assist other law firms in developing or improving litigation strategies in cases filed around the country.

Ralph also has substantial experience in counseling clients regarding their compliance with federal laws, and with state and local laws primarily of the Midwestern United States. For example, he regularly provides assistance in connection with portfolio or program audits, consumer lending disclosure issues, the design and implementation of marketing and advertising campaigns, licensing and reporting issues, compliance with usury laws and other limitations on pricing, compliance with state and local “predatory lending” laws, drafting or obtaining opinion letters on a single- or multi-state basis, interstate branching and loan production office licensing, evaluations and modifications of new or existing products and procedures, debt collection and servicing practices, proper methods of responding to consumer inquiries and furnishing consumer information, as well as proposed or existing arrangements with settlement service providers and other vendors, and the implementation of procedural or other operational changes following developments in the law.

Ralph is a member of the Governing Committee of the Conference on Consumer Finance Law. He is also the immediate past Chair of the Preemption and Federalism Subcommittee for the ABA's Consumer Financial Services Committee. He served on the Law Committee for the former National Home Equity Mortgage Association, and completed two terms as Co-Chair of the Consumer Credit Committee of the Chicago Bar Association.

Ralph received his Juris Doctor from the University of Illinois College of Law, and his undergraduate degree from the University of California at Los Angeles (UCLA). He is a member of the national Mortgage Bankers Association, the American Bankers Association, the Conference on Consumer Finance Law, DBA International, the ACA International Members Attorney Program, as well as the American and Chicago Bar Associations.

Ralph is admitted to practice in Illinois, as well as in the United States Court of Appeals for the Seventh Circuit, the United States District Courts for the Northern and Southern Districts of Illinois, and the United States District Court for the Eastern District of Wisconsin, and has been admitted pro hac vice in various jurisdictions around the country.